"To date, our liquidity measures appear to have contributed to some
improvement in financing markets," he said in remarks prepared for
delivery to the Federal Reserve Bank of Atlanta's annual conference.

"These are welcome signs, of course, but at this stage conditions in
financial markets are still far from normal. A number of securitization
markets remain moribund," he said in remarks to be transmitted via
video link from Washington.

Bernanke noted a "substantial" improvement in the market for
Treasury repurchase agreements and narrower spreads on agency mortgage
backed securities and corporate debt. But he said risk spreads remained
generally high, while strong demand for liquidity from the Fed showed
funding problems persist.

"Ultimately, market participants themselves must address the
fundamental sources of financial strains -- through deleveraging,
raising new capital, and improving risk management -- and this process
is likely to take some time."

"The Federal Reserve's various liquidity measures should help
facilitate that process indirectly by boosting investor confidence and
by reducing the risks of severe disruption during the period of
adjustment," Bernanke said.

Bernanke said the size of auctions of liquid funds for banks under
the Term Auction Facility created in December, which already have been
increased to $75 billion from $20 billion, could be upped again if
demanded by market conditions.

The Fed has slashed interest rates by 3.25 percentage points since
mid-September and pumped billions of dollars into financial markets to
stop them seizing up amid a global credit crunch sparked by the U.S.
subprime mortgage crisis.

Controversially, the Fed's steps also included a massive cash line
that enabled JPMorgan to rescue faltering investment bank Bear Stearns.
Defending the Fed's actions, Bernanke said a Bear Stearns bankruptcy
could have touched off a much broader liquidity crisis.

Bernanke acknowledged intervention risked a moral hazard that
investors would renew risky behavior in the expectation of being
protected by the central bank. But he said regulation ahead of a crisis
was the best way to address that risk.

"The problem of moral hazard can perhaps be most effectively
addressed by prudential supervision and regulation that ensures that
financial institutions manage their liquidity risks effectively in
advance of the crisis," he said.

"In particular, future liquidity planning will have to take into
account the possibility of a sudden loss of substantial amounts of
secured financing," he said, noting that bank supervisors aimed to
ensure that institutions had adequate risk-management measures in place.

Bernanke said the creation of the Term Auction Facility appeared to
have overcome "to a significant degree" the stigma of borrowing
directly from the Fed at its traditional discount window. Banks are
often hesitant to borrow at the window out of worry their borrowing
will become known by market participants, who might view them as being
in financial distress.

He also said measures to provide liquidity to large Wall Street
dealers had been helpful, saying that they appeared to have bolstered
confidence among dealers' counterparties.

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